Institutionalizing Countercyclical Investment: A Framework for Long-term Asset Owners

Goodbye (Chinese) Shadow Banking, Hello Market‐based Finance

“…While Basel III liquidity and leverage rules may restrict banks’ use of classic repos, the FSB abandoned the push to treat large asset managers as ‘too‐big‐to‐fail’ global institutions. This would have generated stricter oversight and capital requirements in order to reduce well‐documented pro‐cyclicality (Jones, ). Blackrock wrote to the FSB in September 2016 to congratulate it for rethinking its position, the result of years of intense lobbying (Brush, ).…”

Central Bank Reserve Management and International Financial Stability-Some Post-Crisis Reflections

“…35 While the deployment of 'surplus reserves' in intergenerational savings-based SWFs might help to relieve central banks from some of the earlier discussed stability tensions-SWFs typically have a single objective and thus more degrees of freedom in portfolio management-if the latter do not enjoy the appropriate governance and institutional design features, procyclicality among sovereign institutions may simply continue albeit under a different owner. Appropriate (long-term oriented) incentive design is critical in this respect (see Jones, 2016). Norway was the most prominent example of a SWF whose governance structure allowed it to maintain a countercyclical orientation through the depths of the crisis.…”

“…Particular attention should also be paid to possible signaling effects, since actions by official reserve holders are followed closely by market participants. "5 See for instance, Bank of England (2014), OECD (2014), IMF (2014) andJones (2016Jones ( , 2017. Note that most of the related stability analysis on institutional investors has been concentrated on asset managers, rather than asset owners (for analysis of 'structural vulnerabilities' posed by asset management activities, see most recently, Financial Stability Board, 2017).…”

“…Asset owners are principally responsible for the large strategic shifts of capital across asset classes and geographies. To the extent asset managers amplify procyclicality in their tactical decisions, it can often be a response to the performance appraisal terms imposed by asset owners(Jones, 2016).©International Monetary Fund. Not for Redistribution…”

Commodity-based Sovereign Wealth Funds: Managing Financial Flows in the Context of the Sovereign Balance Sheet

“…Some SWFs, such as those in New Zealand and Singapore, specify the risk tolerance. The Chilean Social and Economic Stabilization Fund does not define a quantifiable risk tolerance level.28Papaioannou et al (2013), andJones (2013Jones ( , 2016.29 In the case of Norway, for instance, the real return on the fund is calculated as nominal return in foreign currency, adjusted for a weighted average of inflation in the countries that constitute the benchmark of the fund. Even if returns are measured in foreign currency, the accounts of SWFs are usually presented in local currency.©International Monetary Fund.…”